A company preparing for a Chapter 7 liquidation has the foll

A company preparing for a Chapter 7 liquidation has the following liabilities:

•

Note payable A of $112,000 secured by land having a book value of $61,000 and a fair value of $81,000.

•

Note payable B of $142,000 secured by a building having a $71,000 book value and a $51,000 fair value.

•

Note payable C of $71,000, unsecured.

•

Administrative expenses payable of $31,000.

•

Accounts payable of $131,000.

•

Income taxes payable of $41,000.

The company also has these other assets:

•

Cash of $21,000.

•

Inventory of $122,000 but with fair value of $71,000.

•

Equipment of $112,000 but with fair value of $61,000.

How much will each of the company\'s liabilities be paid at liquidation?

                                                               Amount

Payment on note Payable A =

Payment on note Payable B =      

Payment on note Payable C =   

Payment on administrative expense =      

Payment on accounts payable =     

Payment on income taxes payable =     

Solution

The priorities of payment during the liquidation are :

1) First of all the liquidation charges

2) Second all the secured creditors are been paid

3) Outside outstandings and creditors are paid-off.

4) Administrative expenses

5) government dues are paid-off.

6) business trade dues like AP are paid-off.

In the case, the Amount of the payment are:

The amount collected of the liquidation are =

Land = $81000

Building = $51000

The other collection of the liquidation are = cash 21000 + inventory 71000 + sale of equipment 61000 = 153000

Total = $285000

Payment made of dues :

Payment on note Payable A secured of Land = $81000 + 31000 = 112000

Payment on note Payable B secured of building = $51000 + 91000 = 142000   

Payment on note Payable C unsecured = 0

Payment on administrative expense = $31000

Payment on accounts payable = 0

Payment on income taxes payable = 0

Total payment = $285000